Marc Marchese
Key Mortgage Partners
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Smart Advice - IRD Penalties
December 12, 2024
Payout penalties in Canada for fixed mortgages are typically IRD or 3 months interest, whichever is greater. But IRD calculations and outcomes can vary greatly.
Know the difference between lenders.
Take this example: Lender A has offered you 0.10% lower than Lender B. But Lender A uses discounted rates. Let's look at the math on what that lower rate could mean later if you break your mortgage in two years.
Let's compare:
- Have a slightly lower payment with Lender A and save about $1,000 in interest over the two years.
- But when you need to break your mortgage, the penalty costs $25k+ higher
- You wanted to break the mortgage to take advantage of lower rates. However, due to the high penalty, it doesn't make sense to break your term. You are forced to stay with Lender A.
- At the end of the term with Lender A, you will end up with higher interest costs + higher payments for the last 3 years of the term.
Knowing the difference between lenders is key to paying the least amount of interest for your mortgage!
Reach out to us and we will be sure to review the best options for your situation!
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